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Payday loans prove harmful to most borrowers

Many Tennessee residents live on tight budgets. Their incomes must cover basic expenses, including food, utilities and fuel for vehicles. Often, no amount of money is left over for savings. Sometimes monthly incomes of even average wage employees cannot cover these expenses; if there are unexpected bills such as those that accompany medical emergencies, financial disaster may be just around the corner. In many places, payday lenders offer short-term loans to those who most need cash quickly.

Unfortunately, payday loans can do more harm than good to those desperate enough to apply for them. In fact, the director of the federal Consumer Finance Protection Bureau is scheduled to visit Tennessee to host a discussion about payday loans, in an effort to steer people away from them.

Most traditional lenders such as mortgage companies, credit unions and banks consider a borrower's ability to repay a loan before approving an application. Payday loan vendors do not, creating a financial debt trap for many who take their loans.

According to one report, the typical $350 payday loan has an annual interest rate of 391 percent, making repayment incredibly difficult for people who have very limited incomes. These lenders either do not care about or rely on the borrower's inability to repay the loan in a timely manner, which means that payday loans usually create a vicious cycle of debt. Such cycles of debt and resulting poverty affect too many Tennessee families.

Fortunately, better options are available for people who need debt relief. For some people, paying off debt with credit cards is possible, especially because the interest rates are actually lower than the interest rates of payday loans. For many others, however, filing for personal bankruptcy is the best solution. In fact, filing for bankruptcy is the only way many consumers can build healthy and prosperous financial lives.

Source: The Tennessean, "Predatory payday loans damaging to borrower, community," Michael Calhoun, March 24, 2014

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Kenneth C. Rannick, P.C.
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